Fearful Investors Provide Buying Opportunities

By Sham Gad | September 27, 2011 AAA

While the U.S. stock market hasn't dropped to 2008 and 2009 levels, some share prices certainly have. In fact, some businesses are trading lower than they were during the height of the recession despite the fact that the economy is significantly improved. To be sure, today's turmoil is in part due to the anxiety that another recession is on the horizon. Such fear leads to indiscriminate selling. (For more on recessions, read Recession: What Does It Mean To Investors?)

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Building a Watch list
Berkshire Hathaway (NYSE:BRK.B) (NYSE:BRK.A), arguably one of the safest businesses that a long-term investor can own, hit a new 52-week low this week before making a rebound. Still, class B shares are now trading for about $66. While, Berkshire Hathaway Class A shares are trading at 14 times earnings. Even more compelling, Berkshire is currently trading at price to book value (P/B) of 1.01, a valuation that is well below Berkshire's historical P/B multiple. Berkshire also owns a truckload of warrants on Goldman Sachs (NYSE:GS) and Bank of America (NYSE:BAC) as a result of Berkshire's capital infusion. Those options are currently underwater but they offer an enormous upside over the upcoming years.

Commodities Crushed
Commodity prices have crumbled in September as concerns over a recession and a slowdown in the Chinese economy have grown amongst investors. As commodity prices go, so do the businesses that deal in them. Zinc producer Horsehead Holding (Nasdaq:ZINC) is one such name. Shares in ZINC are trading at around $8.50, still above recession lows of $4 a share. But the company continues to progress along and is well managed. In addition, the balance sheet has nearly $3 in net cash per share. And shares now trade at par with book value.

Canadian commodity giant Teck Resources (NYSE:TCK) is trading at $30, down over 50% in less than a year. The business trades at 5.3 times forward earnings and less than 4.5 times EV/EBITDA. Of course, continued volatility in the commodity sector will likely create similar volatility for Teck's share price. Teck is a business with quality management and a wonderful collection of assets, but short-term investors could be disappointed. Over the long run, its a business worth watching closely, especially if the share price gets any lower.

The Bottom Line
No one likes market declines and it would be nice if markets continuously went up. But the human disposition makes that impossible. It's up to the opportunistic investors to take advantage of panic selling. Money is made when an asset is bought, but you don't realize that cash until you sell the asset at a higher price. (For more information, check out 4 Tips For Buying Stocks In A Recession.)

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